Why India is the fastest growing tech hub in the world
Technology companies in India have driven growth, created jobs, increased access to resources, education and healthcare, resulting in falling poverty levels and improved lifestyles.
According to a report by NASSCOM, India was ranked the 3rd largest startup ecosystem with more than a 100 accelerators, 200 active angels, 150 VCs and over 4,200 startups operating in the region. The nation is on the forefront of innovation, technology and entrepreneurship, and 2015 was quite the year for the Indian startup ecosystem. Here is a snapshot of the activities that took place over the past year with some insights on how it has evolved, and will continue to evolve.
Photo credit: Meena Kadri.
Increasing connectivity and consumer purchasing power
With over 300 million people having access to the internet, India is now the second most connected nation in the world (after China). The country spent 169 minutes per day on their smartphones in 2015. The influx of low cost smartphones and laptops, coupled with relatively low cost mobile plans have empowered people across the country to connect, especially in rural India.
Although we expect this to rise over time, the country still has some way to go in terms of mobile penetration, with only 23 out of every 100 people on mobile.
Consumer spending has also been on the rise over the years, and is set to hit 3.5 trillion by 2020 driven by increased access, convenience, connectivity, higher incomes and employment.
Source: Trading Economics
Research conducted by KKR shows how income levels have changed over the years, reflecting a growing, more developed economy with increased purchasing power.
Source: KKR
Home to a young, vibrant startup scene
The country is home to some of the youngest entrepreneurs in the world, with the average age of founders at a mere 28 years. The ecosystem has seen a rising number of successful startups being churned out and exits taking place, showing signs of a maturing ecosystem. This has lead to an increase in high quality entrepreneurs, mentors and investors with past experience helping build and accelerate new businesses.
However, less than 10% of all Indian startup entrepreneurs and engineers are female and the numbers are even more alarming in the venture scene. Doug Leone from Seqouia Capitalpoints out that “we are missing out on a point of view that represents half the population, so it is in our interest to have that point of view.”
This trend is consistent worldwide and a survey conducted by Stack Overflow in early 2015 revealed that 92% of engineers across the world were male.
Source: StackOverflow Developer Survey 2015
The data also suggests that developers in India are 3 times more likely to be female than in the US.
Indian startups witnessed an increase in access to funding and a reduction in the cost of building a company from the ground up. Many of these companies are adaptations of foreign equivalents, incorporating strategies in the hopes of creating a business model that works locally. Shailedra Singh from Sequoia Capital recently said “We don’t see them as clones, we see them as mutants”. There will be a rise in more deep tech companies with local innovations coming out of india, but this will take time.
Startups in India are valued at US $34.7 billion or more.
Sources: Wall Street Journal, YoursStory Media, CB Insights, TechinAsia
Of these 9 companies, 5 are headquartered in Bangalore, 3 in Delhi and 1 in Gurgaon.
Increasing amounts of investments and mergers & acquisitions
Data collected from from Trak.in and CB insights indicate that approximately US$8.5 billion in startup funding took place in the region with almost 1,000 deals sealed.
Source: CB Insights
Interest from non-traditional investors, overseas investors, high net worth individuals and a rise in micro VCs resulted in increased valuations. Participation from private equity funds and hedge funds in series C and D rounds were also causes of this rise.
Highest funded verticals over the last 12 months were food tech, travel, ecommerce, fintech and payments and startups based in Mumbai, Bangalore and Delhi received majority of funds invested.
Source: VC Edge
Top 10 Investors in 2015 based on deal volume:
Source: CB Insights
Mergers and acquisitions (M&A) activity in the country fell by 4.8% over the last year to $35.1 billion, according to Thomson Reuters.
However, technology companies in India have been making more acquisitions and acquire not only to expand operations and user base, but also to access the best engineering talent in the country. Research from Microsoft Ventures and iSpirit points out that there were more than 190 product M&As with a deal value exceeding US$2.3 billion between 2011 and 2015. It is also likely that more overseas tech giants will acquire Indian companies to enter India.
Opportunities and future trends
- A rise in tech adoption has given rise to the analytics industry in India. Although IoT startups have not yet taken the centre stage, we can expect more to come from this space both in investment and number of companies being built.
- There exists an opportunity to bring global startups to India to target the Indian consumer. We have already observed a surge in global players, like Google and Alibaba, who want to capitalise on India’s growth. It is also likely that more Indian startups will go global over the next year, making acquisitions to break into new markets.
- Investments will rise to a point where valuations reach its peak and rationality kicks in. There has been a lot of speculation about a potential correction that may result from this and some companies may have to downsize or stop operations. But those with strong fundamentals will strive through the cycle, and some great companies will even be built during this period.
- More Indian cities will churn out entrepreneurs to create mini ecosystems within the country. This can be important in the early stages with access to incubators and accelerators, angels and co-working spaces that provide mentorship, resources and funding.
- Providing internet access to the bottom half of them economy still poses a challenge. It remains to be seen if a large organisation like Facebook, or the policies and actions implemented by the government, will be able to alleviate the situation.
Over the years, India has managed to overcome multiple adversities, including the dearth in infrastructure, shifting economic environments, and inefficiencies within the system in addition to cultural and social barriers. The ecosystem has come of age and there are now more platforms for entrepreneurs to learn, grow and produce great companies than ever before. The rising middle class has also given rise to a new breed of entrepreneurs: young, educated, ambitious, smart, hardworking and driven. The country can only move forward from here.
Originally published at www.techinasia.com.
